What's bright red and white and a favorite of Princess Di's? Why, the sheep jumper, of course. And what's that? Glad you asked: It's a jumper (British parlance for a pullover sweater) with rows upon rows of white sheep forming an unmistakable—once you've seen it—design. Oh, yes, one black sheep is always knitted into the pattern as well, though its exact position amidst the woolly flock changes from one sweater style to the next.

The sheep jumper is the creation of a pair of enterprising English pals, Sally Muir and Joanna Osborne, both 28. Operating from a small shop on London's South Bank, they are partners in a sweater-making cottage industry which they've named Warm and Wonderful. "We always knit things we would like to wear ourselves," says Joanna, and Sally adds, "The sheep jumper just seemed ironic, to have a sheep motif on a wool sweater." They both insist they do not design with royalty in mind and that "by coincidence our style appeals to the sort of girl that Diana is. She has a wonderful sense of fashion, and our sweater is perfect for her casual style."

The Princess of Wales has never visited their shop, so Muir and Osborne are not sure how she came by her sheep jumper—probably a gift, they think. But ever since Di was first photographed some two years ago wearing hers, it has been Warm and Wonderful's hottest-selling item, particularly among London's "Sloane Rangers," the trendy young herd that roams in and out of the fashionable boutiques around Sloane Square. Some 500 sheep jumpers have been sold already this year at $98 per copy. Customers who don't want to follow along sheepishly can opt for pig jumpers, frog jumpers, fish jumpers or any of a couple of dozen creatures of choice.

Muir and Osborne went into knitwear almost by accident. The daughter of Frank Muir, a distinguished British humor writer and TV quiz show personality, Sally attended a boarding school at Ascot before becoming a publicity assistant at a publishing firm. As for knitting, she says, "I just like jumpers so I started making them for myself. I learned at school. We were always knitting for the poor someplace, knitting for Calcutta, as if they needed sweaters there."

Joanna, the daughter of a stockbroker, also became a knitter at a private girls' school. She went to work in the drama department of Britain's independent Granada Television (including a stint as secretary to Lord Olivier) and met her partner-to-be through Sally's brother, a TV producer. The two girls joined forces to rent a stall at the Covent Garden market. Their offerings caught the attention of fashion editors, and four years ago Sally and Joanna went full-time with their new business. Today Sally's home is a one-room flat above the shop, while Joanna lives around the corner in a house with her boyfriend, textbook author and musician Orlando Gough.

Muir and Osborne share in the designing, selling and bookkeeping. They still keep secret the name of the tiny mill in Yorkshire where they get their wool, but with success they no longer have time to tend to their own knitting. That's done now on a piecework basis by 50-odd carefully chosen knitters (all women except for one man) working at home on Japanese-made, hand-operated frames. They take half a day to three weeks to turn out each garment, whose prices range from $60 to $450. Warm and Wonderful knitwear is now sold in 60 outlets in Britain, the U.S. (Macy's and Neiman-Marcus carry them) and Japan. Actors Shelley Duvall and David Bowie are among those who have jumped for the jumpers.

"They are bright girls," says London Times fashion correspondent Suzy Menkes of Muir and Osborne. "They make witty knits. Their most entertaining sweater was one with turkeys all over with a Christmas dinner going on in the middle. Now they are doing much more abstract designs, more texture. And that sheep sweater has been copied all over." Indeed, according to Sally and Joanna, one of their former workers has had the effrontery to market imitation sweaters, and they are taking the case to court. After all, knocking off sheep jumpers simply isn't cricket.